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How Revolut finally won the licence to unlock growth in UK and beyond

Fintech closes in on $45bn valuation as it secures approval from regulators

At Revolut’s Canary Wharf headquarters, neon signs exhort staff to “get shit done”. Yet the start-up’s rocky journey towards becoming a full-fledged bank in its home market has been uncharacteristically slow.

On Thursday, Revolut announced that regulators had granted the London-based fintech a UK banking licence, more than three years after it formally applied. 

The licence decision, which is subject to some restrictions, follows a long tussle between the UK’s most valuable fintech and the company’s regulators over questions about Revolut’s operations and internal controls.

The licence will help support a valuation that could reach up to $45bn if Revolut can pull off a planned sale of existing shares — something that would make it a contender for the title of the UK’s third-most-valuable bank.

It will also allow Revolut to compete with traditional banks by boosting its offering in the UK — and, critically, open the door to licences in other key markets.

Securing a UK banking licence typically takes a year, according to regulatory guidance, but Revolut’s application was stalled by a series of setbacks including the departure of senior executives, accounting problems and concerns about its ownership structure. 

“Revolut was never going to [withdraw its application] because they are too stubborn,” said a person familiar with the discussions. “It was just stalemate for three years.”

For co-founder and chief executive Nik Storonsky, the wait finally ended on Wednesday afternoon when Revolut received a letter from the UK’s Prudential Regulation Authority, the arm of the Bank of England responsible for supervising the country’s banks, confirming its application had been successful, according to a person familiar with the process.

Revolut’s leaders have privately concluded that it was a mistake not to apply for the licence when the business was much smaller, according to current and former staff. Rivals such as Monzo secured their licences when they had far fewer customers, something that Revolut’s bosses came to believe made it easier for them to meet regulators’ demands.

Storonsky’s frustration with the delays boiled over in May 2023 when he criticised the UK for failing to support business and the “long and tiring” licence application process. He said he did not “see the point” in ever listing on the London Stock Exchange, citing a lack of liquidity, the difficulty of doing business in the UK and its approach to tax and regulation.

One person who was approached to work on the licence application said they had turned down the opportunity because of worries that Storonsky’s character would negatively impact the fintech’s relationship with regulators, describing him as “temperamental and volatile” — though hyper-focused on turning out superior products.

By the time of Storonsky’s 2023 broadside, the start-up had already brought in City veteran Martin Gilbert as chair to help manage its relationship with regulators. Its board also includes Michael Sherwood, the former European co-head of Goldman Sachs.

But the company has found it difficult to shake concerns over its governance, controls and compliance, with high staff turnover in key functions. Its chief financial officer and the head of the UK entity that applied for the licence both left last year.

In November, it hired Francesca Carlesi, a former fintech founder and Deutsche Bank banker, to lead its UK business.

It was part of a wider effort to shake Revolut’s reputation as a fast-moving, sometimes reckless, start-up focused on growth at all costs to show that it could become a grown-up, regulated bank with a more conservative approach to risk.

“Nik had this vision that compliance would not be manual with people sat on desks looking through transactions and manually blocking accounts,” said a former senior employee. “He really invested heavily on the technology side of compliance and that just doesn’t sit well with regulators.

“Revolut had to go away from that . . . they had to hire all those people, build all those processes, bring all these bankers in.”

Carlesi’s appointment was viewed positively in the industry. The Italian would “put on a pair of jeans for the office to fit in” with the company’s tech culture but was a “proper banker”, according to one former regulator who knows her.

She has been focused on improving the bank’s compliance culture by creating new approval processes for every feature Revolut seeks to launch, according to another person familiar with the move.

The company has addressed concerns over its internal controls, which caused auditor BDO to warn that the bulk of its 2021 revenues “may be materially misstated”. A clean audit opinion in its 2023 accounts, published on-time earlier this month for the first time in two years, was seen as one of the final steps to securing the PRA’s approval.

The accounts showed Revolut had swung to pre-tax profit of £438mn in 2023, from a £25mn loss in 2022. It has also met a Bank of England demand that it simplify its share structure, a requirement that had prompted a battle with Japanese investor SoftBank.

Revolut has stepped up a charm offensive towards British politicians. With the UK’s general election campaign in full swing in June, Carlesi was one of about 50 company bosses to attend a Labour party event at which Sir Keir Starmer and Rachel Reeves — now prime minister and chancellor respectively — spoke with executives about their plans for the economy and regulation.

Success in obtaining the licence is expected to unlock new growth for a company that has long since dwarfed early rivals such as Monzo and Starling.

The approval paves the way for Revolut to challenge the UK’s biggest domestic banks, allowing it to offer full banking services, including mortgages. In the UK, a priority will be attracting more deposits by paying interest to customers, according to a person familiar with the plans. This will help fund customer loans. 

But the UK licence also removes what has long been seen as a hurdle to international expansion. 

While a Lithuanian licence has allowed it to operate as a bank in the EU, securing a licence from its home regulator was viewed as likely to strongly influence watchdogs in markets where Revolut is seeking to expand, according to people familiar with the matter — not least the US and Australia.

Gilbert, the asset manager who has chaired Revolut since 2020, told the FT: “It’s a huge step to becoming a global super-app and confirms the UK is still a great place to be based because of its globally respected regulators.”

The decision could also help Revolut justify the $45bn valuation it is seeking in an upcoming share sale. If it completes the sale of $500mn of existing shares at that price, it will be one of a select group of fintechs that has managed to increase its valuation from the frothy markets of 2021, when it was valued $33bn.

At that market capitalisation, it would also rival Barclays for the title of the UK’s third-most-valuable bank — behind only HSBC and Lloyds Banking Group, and ahead of NatWest.

It would also put Storonsky’s personal stake in the company at almost $8bn, based an FT analysis of public documents from last August. Gilbert’s holding could be worth more than $850,000. Revolut declined to comment on the figures.

But Revolut is not quite there yet. Its banking licence has been granted under “restrictions”, which is a normal first step as it seeks to meet all the conditions needed to launch as a bank.

Once the restrictions — which include a £50,000 total deposits limit — are lifted and Revolut can operate as a bank, its 9mn UK customers will also be included in the Financial Services Compensation Scheme, meaning deposits of up to £85,000 will be protected if the company were to collapse.

The fintech has been told the process typically takes a year. The company would seek to complete it faster than that, one person familiar with its strategy said. But others who have gone through the same process are more sceptical.

“It’s a very involved process to demonstrate ultimately that the control environment of the company is fit for purpose . . . I don’t know that it’s taken many companies less than a year,” said Atom Bank chief executive Mark Mullen. 

Revolut is hiring a UK regulatory head, whose job will include “communicating clearly with regulators and the business” and working with Revolut UK board and executives to ensure regulatory developments are factored into decision making, according to job adverts on LinkedIn. 

The company’s hope is that the UK licence will kick-start its efforts to win market share from the UK’s traditional banks.

Edward Firth, an analyst at Keefe, Bruyette & Woods, said the fintech would be a threat to other digital banks and incumbents with “semi-comatose” customers who could easily be enticed by better interest rates and cashback offers.

“I assume they will now start to compete,” he said.

The nascent firm created by a 2021 Spac merger will soon manage more than $200bn

Blue Owl has earned a high public market valuation. And the private capital upstart is showing that it is not afraid to use it. So far the manager has announced $1.4bn worth of deals this year, across three acquisitions. This month, in its latest transaction, it acquired the credit manager Atalaya Capital Management, for $450mn.

More interestingly, it has used its own shares for about two-thirds of the total consideration paid across the trio. Companies and private capital firms, in particular, are typically reluctant to issue new stock and the subsequent shareholder dilution. But private capital firms do not like to take on debt at the manager level either. Blue Owl itself is a nascent firm that was created by a 2021 special purposes acquisition company, or Spac, merger and will soon manage more than $200bn. 

Its growth prospects and focus on steady private credit investing, as well as ownership stakes in other large private equity managers, has intrigued Wall Street. Its price to trailing last 12 months cash earnings per share ratio is a healthy 28 times. This formidable currency has allowed Blue Owl, whose equity value is $26bn, to make big bets.

The largest deal Blue Owl has struck was for Kuvare, an insurance investing specialist. A third deal, for Prima Capital Advisors, got it deeper into real estate. All three acquisitions were for firms led by their founders. Stock payment can be a form of incentive to persuade the target’s employees to continue running hard. All three deals also include earnout incentives where the targets’ respective owners can earn additional payouts if operating targets are hit.

Earlier this year, Blue Owl sold $750mn of 10-year bonds at a healthy coupon of 6.25 per cent. Comparing that after-tax debt cost with its stock market valuation roughly suggests why share issuance is a reasonable choice.  

Integrating people-driven businesses, especially when the Masters of the Universe are involved, is hard and Blue Owl has reportedly had its challenges. Blue Owl’s quick ascent and emphasis on M&A as its rocket fuel is also notable. Many other firms have preferred to grow steadily and organically. But Blue Owl sees the future as now and wants to win the land rush. The good news for them is that they have shown enough promise to Wall Street to make their stock currency very deployable.